Surprise! Your long-term care insurance won’t cover it

AdamWolf

Adam Wolf CPA/PFS, CFP® is the president of Wolf Retirement Navigation in
Jacksonville, Fla., where he advises clients who are financially preparing for,
transitioning into and looking to enjoy their retirement. Adam has been helping
clients reach their personal financial planning and tax goals since 2000. He is
a Florida licensed Certified Public Accountant (CPA), Certified Financial
Planner certificate (CFP®) and recognized with the Personal Financial Specialist
(PFS) designation by the American Institute of Certified Public Accountants. He
can be reached at wolfretirement.com.

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There are over 2.6 million group long-term care, or LTC, certificate holders in the U.S. Many of those insured believe that they have comprehensive LTC coverage that covers many types of long-term health care costs.

There are significant limitations under most group LTC coverage that may come as a surprise when one files a claim. The following are contractual provisions that may significantly impact the benefits you receive under your policy.

Nursing home benefits

These benefits are covered in full for the daily benefit amount selected under a group policy. No one wants to go to a go to a nursing home. Most want to stay at home. However, a nursing home is a typical first-stop under the contract and this step may delay one from filing for a claim. However, this changes when you review the benefits for any assisted-living expenses.

Assisted living is a preferential and needed choice over a nursing home for many people. However, benefits for assisted living may be limited to a certain percentage of the nursing home benefit (typically 60%-75 %). One group contract I recently read stated that, “room and board charges for assisted living aren't covered.” That equates to a benefit that is equal to 10%-15% of the assisted-living expense in this example. In comparison, most non-group individual LTC policies available today pay full benefits for all forms of facility care, offering more flexibility for the consumer.

Home health-care benefits

In general, group contracts don't cover the cost of care for assistance with activities of daily living, or ADLs. The six ADLs include, eating, bathing, dressing, toileting, transferring and continence. ADL assistance is the major component of home health care.

For example, consider a family member with dementia that otherwise is in great health. They require constant supervision for their own safety, yet these expenses wouldn't be covered under most group contracts. Informal care such as shopping, meal preparation and other assistance with some ADLs is covered under most contracts but the benefits are limited. Benefits are typically limited to $50 a day with a $2,000 lifetime or annual limit.

Individual LTC policies that are properly designed provide a monthly, not daily, comprehensive home health-care benefit for all types of home care, including informal care services. Home health care expenses that are based on a monthly benefit provide a more meaningful benefit. A $300 charge for a single day of home health care would be limited to the daily benefit amount in the group policy whereas all expenses under an individual contract would be covered if the total cost of home health care for the month did not exceed the monthly LTC benefit.

Inflation coverage

Under most group polices inflation protection is in the form of a guaranteed purchase option every three years with a typical increase of 5% a year, not the annual inflation adjustment of 3% - 5% that is prevalent in individual policies today. Guaranteed purchase option benefit increases are based on your age when the option is exercised. As one gets older the cost of an increase in benefits may become prohibitive.

Other limitations

Many older group LTC policies exclude mental and nervous conditions. Depression, anxiety, neurosis and other mental nervous conditions are common in the older population. This can be an easy way for an insurance company to get out of paying a claim.

Potential rate increases

There is only one insurance carrier left offering true Group LTC Insurance, and they are very selective about the groups they will write. The other major carriers stopped selling the product over the past few years. Group insurance pricing is based on a steady flow of new entrants into the group. These group LTC policies are now closed blocks of business and as such are subject to multiple rate increases in the future. As these rate increases occur, many of the healthy lives will drop out of the group, which worsens the group experience, creating a never ending spiral.

It's important for anyone covered under a group LTC policy to review their coverage with a financial professional that is dedicated to Long Term Care Insurance planning. Understanding your coverage is a critical component of your overall financial and health care plan.

Deficiencies in payments for assisted living, home health care, and other group plan design issues can materially affect your financial future.

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